Category: Economics

What is going on with productivity? (from my email)

Various web sources, but none of this seems controversial:

1. US GDP is now higher, in fact a fair bit higher, then when the pandemic began.

2. US labor force participation is about 1.5% lower than when the pandemic began.

Was there really slack to the tune of a few million people in Jan of 2020?

Has inflation really changed enough to make the GDP numbers misleading?

Has total factor productivity improved that much in that time, under those stresses?

Or is this all a sign that the structure of the economy is more stratified than we think – that there are millions of people in more-or-less filler jobs who can be cast out and the economy just keeps on running along?   Yes, there are all sorts of reports of labor shortages, and all manner of supply chain hiccups which seem to often be associated with off shoring, but general activity is still high.   (Or is it?  Are the numbers reporting “vapor GDP?” – or are the inflation adjustments really out of whack so real GDP is not what we think it is?)

That is all from Bryan Willman.

Who are the most rational people?

From John A. Doces and Amy Wolaver:

We examine the question of rationality, replicating two core experiments used to establish that people deviate from the rational actor model. Our analysis extends existing research to a developing country context. Based on our theoretical expectations, we test if respondents make decisions consistent with the rational actor framework. Experimental surveys were administered in Côte d’Ivoire and Ghana, two developing countries in West Africa, focusing on issues of risk aversion and framing. Findings indicate that respondents make decisions more consistent with the rational actor model than has been found in the developed world. Extending our analysis to test if the differences in responses are due to other demographic differences between the African samples and the United States, we replicated these experiments on a nationally representative analysis in the U.S., finding results primarily consistent with the seminal findings of irrationality. In the U.S. and Côte d’Ivoire, highly educated people make decisions that are less consistent with the rational model while low-income respondents make decisions more consistent with the rational model. The degree to which people are irrational thus is contextual, possibly western, and not nearly as universal as has been concluded.

Speculative, and not replicated, but the point remains of definite interest.  Via the excellent Kevin Lewis.

Slow economists, crowding each other out

Publishing in economics proceeds much more slowly on average than in the natural sciences, and more slowly than in other social sciences and finance. It is even relatively slower at the extremes. We demonstrate that much of the lag, especially at the extremes, arises from authors’ dilatory behavior in revising their work. The marginal product of an additional round of re-submission at the top economics journals is productive of additional subsequent citations; but conditional on re-submission, journals taking more time is not productive, and authors spending more time is associated with reduced scholarly impact. We offer several proposals to speed up the publication process. These include no-revisions policies; limits on authors’ time revising articles, and limits on editors waiting for dilatory referees.

Here is the full paper by Aboozar Hadavand, Daniel S. Hamermesh, and Wesley W. Wilson.  And from Lester R. Lusher, Winnie Yang, and Scott E. Carrell, here is a related study:

Publishing takes a long time in economics. Consequently, many authors release “working” versions of their papers. Using data on the NBER working paper series, we show that the dissemination of economics research suffers from an overcrowding problem: An increase in the number of weekly released working papers on average reduces downloads, abstract views, and media attention for each paper. Subsequent publishing and citation outcomes are harmed as well. Furthermore, descriptive evidence on viewership and downloads suggests working papers significantly substitute for the dissemination function of publication. These results highlight inefficiencies in the dissemination of economic research even among the most exclusive working paper series and suggest large social losses due to the slow publication process.

Is less attention for each paper necessarily a bad thing?

Felines as labor market outlier?

When given the choice between a free meal and performing a task for a meal, cats would prefer the meal that doesn’t require much effort. While that might not come as a surprise to some cat lovers, it does to cat behaviorists. Most animals prefer to work for their food — a behavior called contrafreeloading.

A new study from researchers at the University of California, Davis, School of Veterinary Medicine showed most domestic cats choose not to contrafreeload. The study found that cats would rather eat from a tray of easily available food rather than work out a simple puzzle to get their food.

“There is an entire body of research that shows that most species including birds, rodents, wolves, primates — even giraffes — prefer to work for their food,” said lead author Mikel Delgado, a cat behaviorist and research affiliate at UC Davis School of Veterinary Medicine. “What’s surprising is out of all these species cats seem to be the only ones that showed no strong tendency to contrafreeload.”

Here is the link, via E Durbrow.  Having grown up with multiple cats, I can attest that part of the results should come as no surprise.  But why do other animals prefer to work for their food?

Why Didn’t the 2009 Recovery Act Improve the Nation’s Highways and Bridges?

Kevin Lewis has been on such a roll lately, I am pleased to bring you all more content that he has sent my way:

Although the American Recovery and Reinvestment Act of 2009 (the Recovery Act) provided nearly $28 billion to state governments for improving U.S. highways, the highway system saw no significant improvement. For example, relative to the years before the act, the number of structurally deficient or functionally obsolete bridges was nearly unchanged, the number of workers on highway and bridge construction did not significantly increase, and the annual value of construction put in place for public highways barely budged. The author shows that as states spent Recovery Act highway grants, many simultaneously slashed their own contributions to highway infrastructure, freeing up state dollars for other uses. Next, using a cross-sectional analysis of state highway spending, the author shows that a state’s receipt of Recovery Act highway dollars had no statistically significant causal impact on that state’s total highway spending. Thus, the amount of actual highway infrastructure investment following the act’s passage was likely very similar to that under a no-stimulus counterfactual.

The paper is by Bill Dupor, of the St. Louis Fed.  Kevin is a shy, unassuming man, a family man at that, and still deeply underrated!

Is Africa losing its growth window?

The macro side of the story here is underreported, alas:

One of the saddest stories of the year has gone largely unreported: the slowdown of political and economic progress in sub-Saharan Africa. There is no longer a clear path to be seen, or a simple story to be told, about how the world’s poorest continent might claw its way up to middle-income status. Africa has amazing human talent and brilliant cultural heritages, but its major political centers are, to put it bluntly, falling apart.

Three countries are more geopolitically central than the others. Ethiopia, with a population of 118 million, is sub-Saharan Africa’s second-most populous nation and the most significant node in East Africa. Nigeria has the most people (212 million) and the largest GDP on the continent. South Africa, population 60 million, is the region’s wealthiest nation, and it is the central economic and political presence in the southern part of the continent.

Within the last two years, all three of these nations have fallen into very serious trouble.

And:

Based on size and historical and cultural import, Democratic Republic of the Congo ought to be another contender as an influential African nation. But the country has been wracked by conflict for decades. It is not in a position to fill the void created by the failings of Ethiopia, Nigeria and South Africa.

The last few decades have been a relatively propitious time for Africa. There have been a minimum of major wars in the world, and a dearth of major new pandemics (until recently). China was interested in building up African infrastructure, and across the continent countries made great advances in public health.

Could it be that this window has shut, and the time for major gains has passed? And that is not even reckoning with the likelihood of additional damage from Covid on a continent with a very low level of vaccination.

These sub-Saharan political regressions might just be a coincidence in their timing. But another disturbing possibility is that the technologies and ideologies of our time are not favorable for underdeveloped nation-states with weak governments and many inharmonious ethnic groups. In that case, all this bad luck could be a precursor of even worse times ahead.

Here is the link to the full Bloomberg column.

Build

The excellent Eli Dourado in the NYTimes:

Many of our country’s problems are reducible, in one way or another, to the fact that we have lost the imperative to transform the physical world. While the soft technology of the internet has marched forward, development of real stuff — of steel and concrete — has slowed, hampered by laws that privilege the status quo.

…Under the National Environmental Policy Act, passed in 1969, federal agencies must produce a detailed statement of environmental impacts for any action — including granting a permit — that significantly affects the human environment. In contrast with the ugly motivations driving zoning, NEPA came into existence riding a wave of environmental consciousness. It was motivated by two well-meaning but mistaken beliefs: that material progress was of environmental quality and that environmental justice could be served through more citizen voice.

…If we want to build infrastructure as well as housing, we need to address environmental review as well as zoning. We must protect the environment, but we need not do it indirectly with laws that operate only through paperwork and court cases. We should do it directly — with stricter air and water standards, smarter conservation policies and a carbon tax. A direct approach would enable speedy government decisions and get shovels in the ground. A pro-building, pro-environment deal, eliminating environmental review in favor of these direct protections, could improve the environment through stricter substantive standards and through a stimulative effect on new, clean infrastructure.

How did the most dynamic country on the planet become so sclerotic? We did it to ourselves. We enacted laws that privilege the status quo at the expense of change and progress. We liberally passed out veto rights to anyone with the money and wherewithal to hire a lawyer. If we want to reverse the damage and create a more prosperous future, we must make it easy to build.

This is also a good opportunity to plug Ezra Klein’s excellent interview with Jerusalem Demsas, How Blue Cities Became So Outrageously Unaffordable. Notably, neither Erza nor Jerusalem let the left off the hook. The subtitle of the episode is How did the party of big government become the party of paralysis? Ezra also pushes back appropriately on some of the nuttier ideas like expanding the welfare state would make homeowners less likely to push for zoning restrictions.

In many ways, we are rediscovering Mancur Olson’s The Rise and Decline of Nations.

How good was Paul Samuelson’s macroeconomics?

Reading the new Nicholas Wapshott book and also Krugman’s review (NYT) of it, it all seemed a little too rosy to me. So I went back and took a look at Paul Samuelson the macroeconomist. I regret that I cannot report any good news, in fact Samuelson was downright poor — you might say awful — as a macroeconomist.

For instance, during the early 1970s there was a debate about President Nixon’s 1971 wage and price controls. There is some disagreement about the actual stance of Samuelson, as Wapshott (p.152) claims Samuelson opposed Nixon’s wage and price controls, but that doesn’t seem to be true. The Los Angeles Times for instance reported Samuelson opining as follows: “With the wage and price controls, he [Nixon] assured a more rapid short-term economic recovery, and made it absolutely certain he would be the overwhelming victor in the 1972 election.” Maybe that is not quite a full endorsement, but consider Samuelson’s remarks on the August 17, 1971 ABC Evening News: “I don’t think that a ninety-day freeze is going to solve the problem of inflation. But it’s a first move toward some kind of an incomes policy. Benign neglect did not work. It’s time the president used his leadership…We’re better off this Monday morning than we were last Friday. Friday was an untenable situation.”[1]

Really?

For Samuelson and many other Keynesians of his era, it was mostly about wage-push inflation. Do you know what my take would have been?: “The wage and price controls are neither good microeconomic nor good macroeconomic policy.” Samuelson did not come anywhere near to uttering such words. In October 1971, Samuelson argued that Nixon’s NEP [New Economic Policy], which included both severing the tie of the dollar to gold and wage and price controls, was “necessary,” and that the wage and price controls were working better than might have been expected.[2]

In October 1971, Samuelson also argued that the Fed should continue to let the money supply grow, to stave off the risk of a liquidity crisis occasioned by America’s lingering involvement in the Vietnam War (what??…if this is fear of a Bretton Woods collapse, print fewer dollars, besides Samuelson wanted to end Bretton Woods). He said he favored presidential “guideposts” to lower the rate of price inflation from four to three percent, but didn’t favor explicit wage and price controls because it wasn’t enough of an “emergency” situation. That is the extent of his opposition to wage and price controls – lukewarm at best, not objecting in principle, contradicting his earlier stances, and showing a poor understanding of monetary economics more broadly. You don’t have to be a hardcore monetarist to realize that continued money supply growth, in an expansionary period, combined with presidential “guideposts” to lower rates of price inflation, was simply an incorrect view.

In a 1974 piece, Samuelson continued to insist, as he had argued in the past, that the inflation of that era was cost-push inflation, and not driven by the money supply. He also asserted (without evidence) that full employment and price stability were incompatible. In one 1971 piece he made the remarkable and totally false assertion that: “…with our population and productivity growing, it takes more than a 4 per cent rate of real growth just to hold unemployment constant at a high level.”[3]

Really?

In other words, his basic model was just flat out wrong. More generally, the Samuelson Newsweek columns of that era make repeated, dogmatic, and arbitrary stabs at forecasting macroeconomic variables without much humility or soundness in the underlying model.

Milton Friedman did have an overly simplified view of the money supply, as many of his critics have alleged and as Scott Sumner would confirm. But as a macroeconomist he was far, far ahead of Paul Samuelson.

Don’t forget how bad macro was before Friedman came along.

[1] For The Los Angeles Times, see Hiltzi (1994), and also see “Questions and Answers: Paul A. Samuelson,” Newsweek, October 4, 1971. For the ABC News remarks, see Nelson (2020, volume 2, p.267).

[2] See “Questions and Answers: Paul A. Samuelson,” Newsweek, October 4, 1971.

[3] See Paul Samuelson, “Coping with Stagflation” Newsweek, August 19, 1974, and for the 1971 remarks see “How the Slump Looks to Three Experts” Newsweek, Oct.18, 1971. On the four percent claim, see Paul A. Samuelson, “Nixon Economics,” Newsweek, August 2, 1971.

The TGA is Worse than the FDA, and the Australian Lockdown

I have been highly critical of the FDA but in Australia the FDA is almost a model to be emulated. Steven Hamilton and Richard Holden do not mince words:

At the end of 2020, as vaccines were rolling out en masse in the Northern Hemisphere, the TGA [Therapeutic Goods Administration, AT] flatly refused to issue the emergency authorisations other regulators did. As a result, the TGA didn’t approve the Pfizer vaccine until January 25, more than six weeks after the US Food and Drug Administration (FDA), itself not exactly the poster child of expeditiousness.

Similarly, the TGA didn’t approve the AstraZeneca vaccine until February 16, almost seven weeks after the UK.

In case you’re wondering “what difference does six weeks make?“, think again. Were our rollout six weeks faster, the current Sydney outbreak would likely never have exploded, saving many lives and livelihoods. In the face of an exponentially spreading virus that has become twice as infectious, six weeks is an eternity. And, indeed, nothing has changed. The TGA approved the Moderna vaccine this week, eight months after the FDA.

It approved looser cold storage requirements for the Pfizer vaccine, which would allow the vaccine to be more widely distributed and reduce wastage, on April 8, six weeks after the FDA. And it approved the Pfizer vaccine for use by 12 to 15-year-olds on July 23, more than 10 weeks after the FDA.

And then there’s the TGA’s staggering decision not to approve in-home rapid tests over reliability concerns despite their widespread approval and use overseas.

Where’s the approval of the mix-and-match vaccine regimen, used to great effect in Canada, where AstraZeneca is combined with Pfizer to expand supply and increase efficacy? Where’s the guidance for those who’ve received two doses of AstraZeneca that they’ll be able to receive a Pfizer booster later?

In the aftermath of the pandemic, when almost all of us should be fully vaccinated,there will be ample opportunity to figure out exactly who is to blame for what.

But the slow, insular, and excessively cautious advice of our medical regulatory complex, which comprehensively failed to grasp the massive consequences of delay and inaction, must be right at the top of that list.

You might be tempted to argued that the TGA can afford to take its time since COVID hasn’t been as bad in Australia as in the United States but that would be to ignore the costs of the Australian lockdown.

Article 13 of the Universal Declaration of Human Rights states that

  1. Everyone has the right to freedom of movement and residence within the borders of each state.
  2. Everyone has the right to leave any country, including his own, and to return to his country.

Australia has now violated each and every clause of this universal human right and seemingly without much debate or objection. It is deeply troubling to see people prevented from leaving or entering their own country and soldiers in the street making sure people do not travel beyond a perimeter surrounding their homes. The costs of lockdown are very high and thus so is any delay in ending these unprecedented infringements on liberty.

Our Regulatory State Isn’t Learning

Outsourced to John Cochrane:

Delta is the fourth wave of covid, and amazingly the US policy response is even more irresolute than the first time around. Our government is like a child, sent next door to get a cup of sugar, who gets as far as the front stoop and then wanders off following a puppy.

The policy response is now focused on the most medically ineffective but most politically symbolic step, mask mandates. An all-night disco in Provincetown turns in to a superspreader event so… we make school kids wear masks in outdoor summer camps? Masks are several decimal places less effective than vaccines, and less effective than “social distance” in the first place.* Go to that all night disco, unvaccinated, but wear a mask? Please.

If we’re going to do NPI (non pharmaceutical interventions), policy other than vaccines, the level of policy and public discussion has tragically regressed since last summer. Last summer, remember, we were all talking about testing. Alex Tabarrok and Paul Romer were superb on how fast tests can reduce the reproduction rate, even with just voluntary isolation following tests. Other countries had competent test and tracing regimes. Have we built that in a year? No. (Are we ready to test and trace the next bug? Double no.)

What happened to the paper-strip tests you could buy for $2.00 at Walgreen’s, get instant results, and maybe decide it’s a bad idea to go to the all night dance party? Interest faded in November. (Last I looked, the sellers and FDA were still insisting on prescriptions and an app sign up, so it cost $50 and insurance “paid for” it.) What happened to detailed local data? Did anyone ever get it through the FDA’s and CDCs thick skulls that even imperfect but cheap and fast tests can be used to slow spread of disease?

…And then we indulge another round of America’s favorite pastime, answers in search of a question. Delta is spreading, so… extend the renter eviction moratorium. People who haven’t paid rent in a year can stay, landlords be damned.

All true. I got dispirited on testing. It’s insane that we don’t have cheap, rapid testing and good ventilation ready for a new school year. As I wrote about earlier, even the American Academy of Pediatrics is shouting from the rooftops that the FDA is deadly slow. The eviction moratorium is a sick joke. Just a backhanded way to redistribute wealth without a shred of justice or reason. Disgusting.

Here’s one more bit (but read the whole thing there is more.)

To learn from the mistakes, and institutionalize better responses would mean to admit there were mistakes. One would think the grand blame-Trump-for-everything narrative would allow us to do that, but the mistakes are deeply embedded in the bureacracies of the administrative state. Unlike bad admirals in WWII, nobody less than Trump himself has lost their job over incompetent covid response. The institutions have an enormous investment in ratifying that they did the best possible job last time. So, as in so many things (financial bailouts!) we institutionalize last time’s mistakes to keep those who made them in power in power — which means we do not learn from mistakes.

The labor market ran hot, real wages fell

You may remember that I’ve been predicting that repeatedly, while much of “Twitter economics” was suggesting that “running the labor market hot” would boost real wages, I was claiming it was far more likely that rising employment would be correlated with falling real wages.  (Try here.)  This did not represent any great insight on my part, rather I was simply refusing to make the mood affiliation move of denying the tradeoff, and I had read Keynes’s General Theory.  Here is the latest:

Companies big and small are raising wages to attract workers and hold onto employees as the economy revs back into gear.

But those fatter paychecks aren’t going as far, thanks to rising inflation.

In fact, compensation is now lower than it was in December 2019, when adjusted for inflation, according to an analysis by Jason Furman, an economics professor at Harvard University.

The Employment Cost Index — which measures wages and salaries, along with health, retirement and other benefits — fell in the last quarter and is 2% below its pre-pandemic trend, when taking inflation into account. (Wages and salaries are growing at a faster pace than benefits.)

Score one for Keynesian economics > Twitter economics.

Or maybe they didn’t run the labor market hot enough.

VTEKL.

Solve All Murders

Defund the police is a bad idea and a terrible slogan. Conor Friedersdorf argues for a better policy and a better slogan, Solve All Murders.  He quotes, Jill Leovy, author of Ghettoside:

Forty years after the civil rights movement, impunity for the murder of black men remained America’s great, though mostly invisible, race problem. The institutions of criminal justice, so remorseless in other ways in an era of get-tough sentencing and “preventive” policing, remained feeble when it came to answering for the lives of black murder victims.’

Few experts examined what was evident every day of John Skaggs’s working life: that the state’s inability to catch and punish even a bare majority of murderers in black enclaves such as Watts was itself a root cause of the violence, and that this was a terrible problem—perhaps the most terrible thing in contemporary American life. The system’s failure to catch killers effectively made black lives cheap.

Homicide is the leading cause of death for black males under the age of 44. As Friedersdorf continues:

The absence of policing yields not a safe space where marginalized people thrive, but a nasty, brutish place where violent actors either push people around with impunity or are met with violence by someone who forces them to stop. “When people are stripped of legal protection and placed in desperate straits, they are more, not less, likely to turn on each other,” Leovy wrote. “Lawless settings are terrifying; if people can do whatever they want to each other, there are always enough bullies to make it ugly.”

Moreover, although crime has declined until recently, that beneficial trend may have masked that police may be becoming less productive over time. Nationally a majority of homicides are cleared but the long term tend is down. Moreover, an increasing number of police agencies fail to clear a majority of homicides. In Chicago, for example, less than half of homicides are cleared–that screams too few police not too many. Solve all murders!

We are underpoliced in the United States especially in high-crime areas. We need better policing so that we can all be comfortable with more policing.